Tuesday, September 15, 2009

Lehman mini-bond investors in HKto get back US$800m

HONG KONG: Hong Kong banks agreed to return more than US$800 million (US$1 = RM3.55) to investors burned by Lehman Brothers-backed products, potentially ending a nearly yearlong dispute that sparked street protests and exposed problems in this financial centre's markets.

The 16 banks will return as much as 70 per cent of the principal to thousands of investors, regulators said yestersday. That could total HK$6.3 billion (HK$100 = RM45.82).

Martin Wheatley, chief executive of the territory's securities watchdog, the Securities and Futures Commission, called the deal a "watershed."

"This is a huge settlement," Wheatley told reporters. "It is unprecedented, certainly in Hong Kong and most other jurisdictions around the world."

Wheatley said the total amount the investors could receive would be equal to or greater than what they could otherwise recover at today's current market value.

He said although the deal concluded the SFC's investigation into the mis-selling cases, investors still dissatisfied with the terms could seek redress through legal channels.

He nevertheless pledged to continue the SFC's investigation in unresolved claims.

Under the deal, the banks will repurchase from each eligible customer aged below 65 all outstanding mini-bonds at 60 per cent of their nominal value.

Those aged 65 or above will be able to recoup at least 70 per cent of their investment in the products.

The ultimate payout to investors may be higher if the banks are able to sell the underlying collateral linked to the mini-bonds, the regulators said.

Some investors expressed disappointment over the deal and said they wouldn't support it.

The agreement could effectively shut down any government investigations into claims the banks used deceptive marketing techniques, said Peter Chan, head of the Alliance of LB Victims, which represents about 8,000 investors. Even those interested in accepting the offer may not be covered because of a provision excluding buyers of other structured and leveraged investment products, which aren't uncommon in Hong Kong, he said.

He questioned why regulators would cut a deal that might exclude many investors. "

The dispute erupted in September after the collapse of Wall Street investment bank Lehman Brothers Holdings Inc, throwing into doubt the value of financial products it backed and channelled to Hong Kong investors, many of them retirees, through the territory's banks and brokerages.

Meanwhile, authorities opened probes, lawmakers condemned regulators for failing to protect investors and banks were accused of peddling highly risky derivatives products - most of which went by the wholesome sounding name of "mini-bonds" - as safe investments.

Speaking on behalf of the banks, the chairman and chief executive of Hong Kong's Bank of East Asia, David Li, said the deal would "reinforce public confidence" in Hong Kong as an international center for finance - a reflection of concerns the fiasco had damaged the territory's reputation. - AP, AFP

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